Mortgage lender Nationwide yesterday published figures that indicate May saw the third slide in UK-wide property prices in four months. After April managed to record marginal 0.1% growth, the pattern of modest price drops that now looks set to continue for a period was reconfirmed by selling prices over May coming in 0.2% lower. March and February also saw slight easing of prices.
May’s 0.2% drop takes 12-month price growth down to 2.4% from 2.6% last month and below inflation which is currently at 3%. With buyer interest muted and the Bank of England set to hike interest rates, unless something significant changes, it doesn’t look as though that pattern will reverse this year. A flat property market, or dip, may well persist into 2019 with a total of three interest rate hikes forecast over the next 3 years. Nationwide’s forecast for full year 2018 UK house price growth is a measly 1%. With interest rates also not expected to drop below 3%, that can be considered as the equivalent of a 2%+ drop in real terms.
For buy-to-let landlords in a strong enough financial position to secure a good mortgage, market conditions could well be ripe for adding investment properties to a portfolio at knock-down prices. As an investor, overall long term returns should prove better when properties are acquired during a market downturn, rather than an upswing. However, with Nationwide also reporting limited supply currently coming onto the market, finding the right investment properties will likely involve some perseverance.
It could well be worth it though. The rental sector is growing. A separate report published by the Resolution Foundation last month indicates that half of all millennials will still be renting into their forties. For a third, that is a situation that will be permanent and they will still be renting into retirement.
While it appears there is no rush for landlords to snap up properties and morose market conditions will persist for a year or so, a property market ‘crash’ is also not anticipated. Quoted in The Telegraph, Jonathan Samuels of Octane Capital, a specialist mortgage company explains:
“Tight supply and subdued demand are the key contributors to the ongoing limbo gripping the UK property market.
“A lethargic economy populated by cautious and squeezed consumers has created a property market lacking both momentum and direction.
“Low stock levels and continued cheap borrowing rates will prevent a material decline in prices but equally a rise greater than very low single digits is highly unlikely.”